Genius Act compliant Stable coins 101 a legitimate threat to established players in the transaction space NOT a way to grow NET demand for USD or USD assets much.

People are unwilling to break down how money works and would rather kluge together lots of concepts in one 🧵 1/2 The most important red flag one should recognize when reading people's outlook for Stable coins is when they focus on AUM growth. Perhaps the most notable gaslighter is @SecScottBessent who has projected stable coin growth to be large and important as demand for US TBILLs.

Taking a step back 101 part 2. Policymaker tweaks - gasoline and fire extinguishers are both at play like during a crisis.

In part 1 of this thread I made a case that an excellent outcome would be a stabilization of NGDP at 4%.

https://twitter.com/dampedspring/status/1944021252575838625

4% achieved via inflation at target of 2%. Population growth at roughly 50bp and production growth at a robust but not historic high of 1.5% would be Goldilocks.

You may quibble at productictity being too low because of AI and deregulation but because of both of those being

Taking a big step back 101 Looking at the most major single economic variable is helpful sometimes. Current YoY GDP growth is at the post Covid low of 4.7% which is still relatively hot vs history but the flight path has been clearly in descent. Policymakers would ALL like 🧵 1/2 To have this single variable bottom at no less than 4%, a literal "soft landing" and avoid dropping into the 3's or 2's or worse and stabilize at 4% for the next decade. Regardless of political affiliation we all should hope for this outcome.

Why should we hope for this?

Why do investment mandates exist and what dynamics exist because of them 101.

Benchmarks are a formal version of an investment mandate but I am talking about the broad topic of investment mandates.

I don't think it's controversial but I may be wrong but I think an investment mandate serves a high purpose. An investment mandate allows an end investor to have a reasonable expectation of the risk and reward of the portfolio and its likely correlation to narrow and broader factors.

As many end investors allocate to many investments

AUM and returns for multi strategy funds 101. Because people struggle with my summing up of my alpha and beta returns instead of "using a weighted average" I thought it may be useful to help people understand how professional money management works. My experience is from decades of personal first hand knowledge. At my own hedge fund, Bridgewater, Brevan Howard, and first hand knowledge from PM's and owners of multi strategy pod shops. At the end of the day what matters is the return on AUM. What real dollars are earned

Manage your future money or your spot money 101 You can't do both and sometimes (Japan) you can't do either. Bonds or Money Choose your fighter.

Since the Fed began tightening all G4 currencies have depreciated va hard money and a consumption basket. But future money (bonds)
Are Trading in a range. Future money is being protected via issuance policy and CB reinvestment policies and QT taper. Yield curves ex Japan are pretty average steepness. Despite spot money losing purchasing power and store of value

Swap to floating 101.

How do issuers attempt to understand their financing costs relative to various alternatives and relative to competitors costs? How do investors determine the expected return of their investment choices? How do futures and options traders Determine the appropriate risk free rate to determine the forward price of the underlying asset they are trading? Lastly how do global issuers, investors, and derivatives participants determine these things in their local currency.

The answer is they all swap to floating

There is no "Maturity Wall" 101.
Though this is a myth you may not be relieved by this thread.

Have you seen the doomer charts about the maturity wall of US Debt. It is a clear signal that you should unfollow those who post it. It usually starts with 9TN of debt comes due. Notice the huge wall of debt maturities in the last chart. Sometimes the FURU posting the chart will do it monthly. Particularly when trying to suggest the Fed should cut rates to save the FURU's precious bags. Close to 6TN coming due in the next 3 months. OMIGOD PANIC!

U.S. downgrade 101 comments

Firstly it is not a time to make extreme statements. Breathe people.

What happened?
Moody's lowered its credit rating of the U.S. joining S&P who moved in July of 2011 and Fitch in August of 2023 at a AA rating instead of the highest grade AAA 🧵 Here's how I'm thinking about it.

1. Is there any technical consequences for holders of the debt
2. What happened in markets when S&P and Fitch downgraded and what was happening with fiscal policy?
3. Will the downgrade and possible market moves impact the fiscal policy makers

Fed reinvestment 101. It's in no way QE It's balance sheet size neutral and reserves neutral.

Ever since the Fed has held US Treasuries they have had some of those US Treaasuries mature. In periods when neither QE or QT is active the proceeds from maturities are reinvested in treasuries. They are purchased for many years now via a process called an Add-on to a treasury auction.

The treasury auction today sold 42BN ten years to the private sector. The yield was set completely independently from the

A thought.

One of the classic arguments against market timing trading vs buy and hold is taxes. I totally get that but also it further exposes the basic problem most investors seem to have. That constantly merge long term long only passive beta with alpha I am entirely consistent that almost everyone has no ability to beat the market and shouldn't even try. That means that everyone should own a well constructed low cost diversified long only portfolio of assets and add to that through time as they save and go about their lives.

A tale of two models 101

On Thursday one of these two Fed Nowcast models is going to be wrong. Of course the Wall Street Sheep Consensus straddles both. Why are these models so different?
The NYFRM (and St. Louis fed fwiw) have a 2.5% Q1 GDP Nowcast and Atlanta has a -40bp Nowcast

We won't go through all the math but DSData and @DanielSimonyi and I have been working through the problem and these are our rough findings. The difference is based on the models.

Terming out the debt 101.

Lots of folks think that choosing to NOT term out the debt is a bet by the treasury on interest rates. In other words keep financing in bills until long term interest rates decline and THEN issue longer term.

I totally get that idea but want to look at the numbers a bit.

The first thing one has to ask is what is the end game of the Treasury debt composition if the current composition is undesired and is being held for market timing reasons

The second thing one has to consider is whether the "waiting" has a cost as if

Hypothetically Trump fires Powell scenario

Completely off the cuff here I have to say I see two things as possible.

Trump wants to lower interest rates to achieve his political goals

Trump has such a massive ego that he believes he could do a better job than the Fed in Achieving the Fed's dual mandate and firing Powell and replacing him with a puppet would allow Trump to manage policy better for America and its future.

I think the latter case is a legitimate possibility. He may really think this. Maybe he can manage monetary policy better

Post QT end - reserves evolutions thoughts 101. The idea the Fed has for the future of bank reserves in an "ample" regime is reserves are correlated to GDP. The basic idea I guess is because reserves are the medium of exchange between private sector banks when customers of different banks transact with each other(for private sector investment and consumption activity)or the federal reserve (for tax payments, repo, and debt market transactions including primary issuance), Each of these transactions represent a movement of reserves between banks

Pipe Dream 101 - Mar A Lago Accord version

The Xverse is awash with nonsense regarding a grand bargain called the Mar A Lago Accord. While I accept that anything is possible with the right set of sticks and carrots I cannot imagine such a deal occuring. Nonetheless I will analyze it here in this thread.

What problem is the MALA solving? The basic idea is that the Trump Administration wants to rebalance global trade to favor domestic production. This is a totally reasonable goal. Let's describe the tactics to achieve that goal outlined in MALA

Marking Treasury's Gold to Market 101 inspired by @DannyDayan5

So as many know the U.S. Treasury owns 8000 Metric tons of gold and for balance sheet purposes it is marked at $42.

If the Treasury decided to "sell its gold" to the Fed at market Or better lend its gold to the Fed for cash in the TGA it could conceptually do that. The Fed would credit the Treasury General account with roughly 700BN in fresh cash. While the Treasury couldn't "spend" that cash because fiscal spending is a legislative function

This is an interesting report. I have some comments as having lived through the 95-99 period in a position of very high responsibility and global access at Salomon Brothers which was a massive participant.

I see 95 as consistent with 2021 and LTCM as consistent with LDI/SVB 🧵 Just one brief observation. The AGW (Always good weather) portfolio of 80% equities and 40% long vol does not fit my framework. Its is massively overweighted pro growth and easy financial conditions. But more importantly it doesn't receive risk premium

Fed Policy 101

The job of the Fed is not easy. The tools they have are crude. Predicting the future is hard. The economy is complex and the tools used may have varying impact. Markets themselves often undo policy lever influences or accelerate policy moves in an undesired way Fiscal policy can be highly influential either accentuating or directly counteracting monetary policy stance. Perhaps less relevant for the Fed than other CB's ROW fiscal and monetary policies and needs and desires of global markets can enhance or counteract Fed objectives

An equity security of a corporation values the market value of assets - the market value of liabilities 101

At every moment this equation holds true. So what to do about it.

Mostly one should ignore as market participants are pretty good in aggregate of making this estimate However when you look at a particular company transparency matters. Financial accounting doesn't tell us the MV of assets or liabilities for almost all corporations. It tells us the Book Value of the assets, liabilities and equity

Does cash want assets or do assets want cash 101 - Part 2

At the end of part 1 we dropped this cliffhanger that fear/greed "value" investing and long or short margin calls don't need cash on the sidelines to act. That is because when banks are healthy they can create money out Of thin air to allow risk takers to take risk.

So part 2 really doesn't need to even deal with the size or rate of interest of cash on the
Sidelines. These next 3 drivers don't depend on it. However they do depend on bank health. But let's not jump the gun to that point yet